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After “Hubris” and Its HCV Collapse, Can Vertex Avoid Same Mistakes?

Five years ago, in November 2011, a company from Princeton, NJ, called Pharmasset shared news that would have an impact on millions of people around the world with hepatitis C. Its experimental drug PSI-7977 had quickly cleared the virus from 40 patients, with minimal side effects, and they had stayed infection-free. If the data held up in wider testing, it could mean that hepatitis C could be cured someday with a short course of pills, without the flu-like symptoms that dogged regimens of the past.

“It was absolutely the biggest deal,” says Durhane Wong-Rieger, a longtime hepatitis C patient advocate who now runs the Canadian Organization for Rare Disorders. “It was the evidence we’d all been looking for.”

Officials at Vertex Pharmaceuticals (NASDAQ: VRTX), who were planning a move from Cambridge, MA, into a new $800 million headquarters with views of Boston Harbor, should have seen something much different in those Pharmasset data: An oncoming freight train. According to Vertex’s CEO, Jeff Leiden, then just a Vertex board member, not everyone did.

With what Leiden (pictured) now calls “hubris” and “blindness,” Vertex failed to react quickly enough. Its own hepatitis C drug was crushed. In three years, Vertex went from having a billion-dollar hepatitis C business to zero—abandoning the research completely.

Now Vertex has another flagship franchise, consisting of two drugs approved for the rare and deadly disease cystic fibrosis and perhaps more on the way. Sales of both drugs, ivacaftor (Kalydeco) and the combo pill ivacaftor-lumacaftor (Orkambi), reached almost $1 billion in 2015 and are growing. But the drugs aren’t cures, and competition looms.

Has Vertex learned from its past missteps? “They are on more solid footing than they were, but there’s no such thing as solid footing in this industry,” says Rajeev Shah, a managing director at biotech investment firm RA Capital, which had been a Vertex investor but no longer is. “The moment [a company] becomes a little passive and unaware of the hundreds of threats coming at it is the moment that it risks being extinct.”

Six months before the Pharmasset data release, Vertex had won FDA approval of telaprevir (Incivek), which was a big advance in the treatment of the liver-damaging hepatitis C virus (HCV). Vertex began as a bootstrapped startup in 1989 and was on its way to being a profitable enterprise that helped thousands of patients with a devastating disease. Telaprevir sales rocketed to nearly $1 billion in the first six months, at the time the fastest drug launch ever.

But the Pharmasset data came out, and Gilead Sciences (NASDAQ: GILD), looking to build upon its lucrative portfolio of HIV treatments, pounced. It bought Pharmasset in November 2011 for $11 billion and continued PSI-7977’s stellar run of clinical data. Called sofosbuvir (Sovaldi), the drug won FDA approval in December 2013. With evidence of up to 90 percent cure rates in three months and a very clean safety profile, sofosbuvir quickly made telaprevir obsolete.